Swiss Pensions

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Swiss Pension System

The Swiss pension system is based on three pillars: the Federal Old-age, Survivors’ and Invalidity Insurance (1st pillar), the occupational pension scheme (2nd pillar) and a private pension schemes (3rd pillar). Please click below for further details on each.

The 1st Pillar (AHV) pension is an unfunded, pay-as-you go scheme designed to provide retirees with the minimum needed to survive. Current pensioners receive an income directly from the contributions made by today’s workers, who will in turn rely on future generations to receive their own retirement income. There are also limited disability, widow and orphan pensions.

Unfortunately, according to the BSV (Office of Social Insurances) there will be more people receiving a state pension than paying into it by 2050:

Year Prop. of pensioners vs. workers (age 20-63/64) ratio/pensioner
1948 15.4 5.5
1960 20.7 3.8
1970 23.5 3.3
1980 26.7 2.7
1990 26.7 2.7
2000 28.1 2.6
2010 28.4 2.5
2020 33.7 2.0
2030 42.6 1.3
2040 48.0 1.1
2050 50.4 1.0

 

Source: BSV; AHV Statistik 2014, Table T14

The 2nd Pillar (BVG) pension is an occupational pension, mandatory to those in employment above the lower earnings threshold and above the age of 25. It is funded by both employer and employee, and also contains accident insurance (UVG). It may also include disability, widow and orphan benefits.

Recently 2nd Pillar pensions have come under fire, as the rules under which they are governed have been deemed unsustainable. Martin Ealing, professor of Economics at the University of St Gallen, estimates that occupational pension funds will face a CHF 55bn hole in their funding by 2030, if the government does not overhaul the system. Negative bond yields, negative interest rates, increased currency volatility, and a legal mandate to pay a 6.8% annuity have all been blamed.

Source: Marriage, M (2015, April 19), Swiss pension schemes ‘bankrupt in 10 years’, Financial Times, www.ft.com

If you would like to know more about how the system works, help understanding the benefits of your occupational pension, and how best to plan for your retirement, contact us now to schedule a call or appointment with one of our qualified advisers.

The 3rd Pillar pension (3a, 3b) is a voluntary private pension. Both 3a and 3b are personally funded, but have different rules regarding access, liquidity, and tax advantages.

3a: Pillar 3a (often known as a restricted pension) allows a maximum annual contribution of CHF 6,768 (2015). This amount can be deducted from your annual taxable income, typically resulting in a tax saving of 1000s (canton dependent). However in return for this tax advantage, access is generally restricted to retirement, death, disability, property/company purchase, or on permanently leaving the country. There is no tax on growth or income within the Pillar 3a, however a special, lower, tax is paid when the money is accessed under one of the afore mentioned conditions.

3b: Pillar 3b (often known as an unrestricted pension) does not provide an upfront tax advantage. However there is no tax on growth or income within the Pillar 3b, and there is generally no tax to be paid when accessing your money. As such there is no restriction on when and for what purpose money may be accessed, however many product providers have their own restrictions, rules and access charges.

The investment options for your money within both Pillar 3a and 3b are far more diverse than commonly known, and can include a capital guarantee, investment funds, which do not affect the underlying tax benefits.

Both pillars 3a and 3b have significant tax and savings benefits, and can be used for many purposes such as financing a property purchase, funding education fees for your children, or supplementing your retirement.

If you would like to know more about how 3rd Pillars work, how they can be used to buy property, fund your children’s education or help you retire in comfort, contact us now to schedule a call or appointment with one of our qualified advisers.

If you would like to know more about how the system works, and how best to plan for your retirement, contact us now to schedule a call or appointment with one of our qualified advisers.